Usually the sensex of BSE is calculated by taking free float market capitalization.sensex is the bench mark index derivated as

market capitalization devided by index devider. What is this index devider and which basis it is derivated?

Skip to content# What is the index devider used in the BSE sensex and how does the index devider derivated?

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Usually the sensex of BSE is calculated by taking free float market capitalization.sensex is the bench mark index derivated as

market capitalization devided by index devider. What is this index devider and which basis it is derivated?

SENSEX is calculated using the “Free-float Market Capitalization” methodology. As per this methodology, the level of index at any point of time reflects the Free-float market value of 30 component stocks relative to a base period. The market capitalization of a company is determined by multiplying the price of its stock by the number of shares issued by the company. This market capitalization is further multiplied by the free-float factor to determine the free-float market capitalization.

The base period of SENSEX is 1978-79 and the base value is 100 index points. This is often indicated by the notation 1978-79=100. The calculation of SENSEX involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor. The Divisor is the only link to the original base period value of the SENSEX. It keeps the Index comparable over time and is the adjustment point for all Index adjustments arising out of corporate actions, replacement of scrips etc. During market hours, prices of the index scrips, at which latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds and disseminated in real time.

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The above is asper site of BSE-india. It involves dividing the Free-float market capitalization of 30 companies in the Index by a number called the Index Divisor.

Now what is divisor is :

In mathematics, a divisor of an integer n, also called a factor of n, is an integer which evenly divides n without leaving a remainder (refer http://en.wikipedia.org/wiki/Divisor for more details).

For strategies adopted by BSE to work out index by its Index Cell, kindly refer site : http://www.bseindia.com/about/abindices/bse30.asp

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The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks with the base April 1979 = 100. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around one-fifth of the market capitalization of the BSE.

The base value of the Sensex is 100 on April 1, 1979 and the base year of BSE-SENSEX is 1978-79.

At irregular intervals, the Bombay Stock Exchange (BSE) authorities review and modify its composition to make sure it reflects current market conditions.

The abbreviated form “Sensex” was coined by Deepak Mohoni around 1990 while writing market analysis columns for some of the business newspapers and magazines. It gained popularity over the next year or two.

The stock market has grown by over ten times from June 1990 to today. Using information from April 1979 onwards, the long-run rate of return on the BSE Sensex can be estimated to be 0.52% per week (continuously compounded) with a standard deviation of 3.67%. This translates to 27% per annum, which translates to roughly 18% per annum after compensating for inflation.